Sec 56(2)(viib) is not applicable to shares issued to holding company: ITAT Delhi


Sec 56(2)(viib) is not applicable to shares issued to holding company: ITAT Delhi


ITO, Ward-24(1), New Delhi Vs. Solitaire BTN Solar Pvt. Limited (I.T.A. No.1416/DEL/2020)


1.The assessee is engaged in energy and infrastructure development. It received funds from its 100% holding company.

2.The Assessing Officer (AO) found the premium charged on OCPS excessive and recomputed the Fair Market Value (FMV), leading to an addition of Rs. 3,60,83,000 under Section 56(2)(viib) of the Income Tax Act.

3.The assessee argued that no unlawful gain could occur as the transaction was between holding and subsidiary companies.

4.The CIT(A) agreed, finding the valuation method and the calculation of FMV by the AO incorrect, and concluded that the premium charged was reasonable.

5.The Revenue contested the deletion of the addition, arguing the FMV determined by the AO should be upheld.

ITAT Delhi held as below:

1. The transaction involved the issuance of OCPS to the 100% holding company, Hindustan Clean Energy Ltd. In such cases, no real income is derived as it is essentially a transaction within the same economic entity.

2. DCF method is a recognized method for valuing shares and the AO did not provide valid reasons to discard it.

3.In summation, the instant case where the convertible shares have been allotted to wholly owned 100% holding company, the benefit if any arising to the assessee company on account alleged excess premium, in turn, effectively benefits the subscribers themselves having pre-existing rights in the company.

4.Thus in our view, the conclusion drawn by the CIT(A) cannot be faulted either on facts or in law. Hence, we decline to interfere.

The Copy Order Is As Under:

1718253152-ITA No.1416-Del-2020 _Solitaire BTN Solar Pvt. Ltd